Five Ways You Sabotage Your Savings

“Save more” is a bit like telling people to lose weight. It’s obvious advice, usually welcomed with nodding and guilty smiles. You know it. I know it. We all know saving should be part of our lives.

Getting started, even in a small way, can breed the confidence to do more. Saving, like eating well, is habit-forming.

Sometimes, though, people self-sabotage their savings plans. Here are five ways you might sabotage your own savings at some point in life:

1. Failing to sign up for a 401(k) plan at work: It’s hard to sit through those human resources slideshows, we know. There’s always an important deadline or other meeting to attend. But missing out on your 401(k) is giving up on the best tax break an employee will get short of having kids and buying a home. Increasingly, companies automatically enroll their workers at 3% of salary. You should up that immediately to 10%. Money out of sight is out of mind.

2. Putting off basic planning: Do you know how much money you will need in retirement? Are you scared to think about it? Here’s a simple yardstick. Financial advisors tell folks to plan on anywhere from 15 times to 25 times their maximum salary. You can figure this out in 10 minutes. Go to Salary.com or a similar website and figure out what the 90th percentile annual pay for your career path will be. Multiply that dollar figure by a number between 15 and 25 (your choice) and there’s your “number.” Just knowing it should be motivating.

3. Blowing windfalls: Tax prep companies love to advertise around the idea that your tax refund is a gift from above. It’s not. It’s money you loaned to the government interest-free all year. Either adjust your withholding to keep that money — and dump it into your 401(k) instead — or, if you like the automated “saving” aspect of a tax refund, immediately put it into your short-term emergency kitty or a tax-free Roth IRA. Whatever you do, stop spending windfalls.

4. Paying too much for money management: Once you get a head of steam going on saving, then you have to figure out how to make that money grow safely. There are plenty of folks out there who would like to help you achieve that, and nearly all of them charge far too much for what they provide. If you are stuck in an expensive 401(k), make some noise at work about it. If you save in IRAs, look for passive investments such as exchange-traded funds (ETFs) and index funds. The math is simple: Expensive management will cost you a third of your investment return. It’s just unnecessarily costly.

5. Robbing your retirement to finance college: This is a huge temptation late in the game. You have done your work diligently over the years, built up a decent nest egg, maybe even paid off your home and cars. Retirement is in your sights. Then junior wants to go to an expensive private university or your little girl gets into dental school. You love your kids. That’s great. But they can borrow to pay for school. You cannot borrow to fund your retirement. Blow it now and you will not get another shot, no matter how high the market goes up. Be very careful.

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